Guaranteed Renewability for Life- The New Age Health Insurance Plans

The Insurance Regulatory and Development Authority of India (or IRDA in short) recently brought about various changes in the functioning of health insurance policies. Aimed to streamline procedures and regulate policy norms, these new changes have surely impacted one and all- policy holders as well as insurance companies. A very significant change brought about in October 2013, is the guaranteed renewability of health insurance plans for life. Looked at as a welcome move by many policy holders, this new age health plan is now the order of the day. But to understand what it entitles the policy holder, the pricing factor and the impact on insurers, we must delve a bit deeper.

The Policy That Was- What Existed Before

Until the implementation of the changes in October 2013, health plans where stringent about policy renewal. Many were at a disadvantage when it came to policy renewal, and where often left in the lurch, unable to get a health cover. What determined a health plan renewal?

First, policy renewals depended on the claims made in the previus policy year. Insurers maintained a claim based loading when policies where renewed. This means, an increase in subsequent premiums if a claim was made. Such a practice made policies getting tighter on the pocket, and thereby many policy holders, failed to get adequate cover. Another important factor was age. Almost all insurance companies maintained an age cap for renewal of health plan. So if you crossed the age of 60-65 years, you would find it difficult to renew your health plan.

Current Changes- What it is now

The new age health plans now prescribe a guaranteed renewability, or in other words, a policy that is renewable for an entire lifetime.

The renewal is possible irrespective of what claims have been done previously, or the age of the policy holder. So, with this latest move of IRDA, you could get a health insurance cover even at the age of 65 years, getting in renewed through the course of your entire life.

Benefits to Policy Holders

Easing of age restrictions: The biggest advantage of this move is the easing of the age restriction when it comes to policy renewals. For the senior citizens, who earlier were being denied of a health cover, the removal of age restriction is a sure boon. They could now have a health cover to meet medical emergencies, at the time in their life when they need it the most. Insurance companies maintain the following age criteria for health policies (may vary from insurer to insurer).

Minimum entry age: 3-5 years

Maximum entry age: Anyone up to the age of 65 years can buy a health insurance product.

Maximum age of renewability: Lifelong

Continuous Cover: Where earlier renewals were permitted only till the age of 65-70 years, with a lifelong renewability option you could now be ensured of continuous health coverage, with no ceasing age. Thus, as a policy holder you wouldn’t be left at any point in the lurch, without health protection.

Impact on Premium

With the changes implemented, the premiums of health plans have shown an upward movement. For the policy holder now, the same health plan, costs more, with the premiums being pushed higher by 25 to 25%. We could explain this surge from the insurance company’s point of view. Most insurance claims are above the age of 60 years. As one becomes older, the probability of contracting an ailment is much higher. The insurer thus, faces a higher risk of settling claims. Also, they cannot quote high premiums beyond a point for the senior age group. This thus, puts a lot of pressure on the insurer to price the product.

Apart from this, IRDA’s abolition of claim-based loading on subsequent premiums also plays a role in pushing the premiums higher. Claim based loading earlier allowed insurers to raise premiums in the subsequent year, in case of a claim in the previous year. The new rule now does not permit this.

To offset the above two points, insurers need to increase the premiums on the basis of their individual total claim experience. This thus trickles down to the younger age group, pushing their premiums much higher.

IRDA’s latest move has brought about mixed feeling in the insurance sector. Where, on one side it is appreciated by many policy holders especially the senior citizens, many others are not too satisfied with the outcome of increased premiums. Nevertheless, the standardisation and streamlining the changes have brought about is a sure advantage. Looking at the protection point of view, insurers can now refuse a policy, only in case of an adverse health condition.